Q4 2020 TPI Composites Inc Earnings Call
Good afternoon, and welcome to TPI composites fourth quarter and full year 2020 earnings conference call.
Today's call is being recorded and we have allocated one hour of prepared remarks and Q&A.
At this time I'd like to turn the conference over to Christian Even Inc.
The Investor Relations for TPI composites.
You may begin.
Thank you operator, I'd like to welcome everyone to TPI composites fourth quarter and full year 'twenty 'twenty earnings call, we will be making forward looking statements. During this call based on current expectations and assumptions, which are subject to risks and uncertainties.
Actual results could differ materially from our forward looking statements.
Many of our key assumptions are incorrect because of other factors discussed in today's earnings news release and the comments made during this conference call or in our annual report on form 10-K filed with the Securities and Exchange Commission or in our latest reports and filings with the Securities and Exchange Commission each of which can be found on our website TPI composites dotcom, we do not.
Undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures you should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures with that let me turn the call over to Bill Siwek, TPI composites, President and CEO.
Thanks, Christian and good afternoon, everyone and thank you for joining our call. In addition to Christian I'm joined today by Bryan Schumaker, our CFO of briefs.
Briefly review, our full year results and activities discussed the current operational status of our manufacturing facilities, including our supply chain give an update on our global service and transportation businesses and then a quick update on the wind energy market.
Brian will then review our quarterly and full year financial results in detail, our 2021 guidance and then we'll open up the call for Q&A.
Please turn to slide five.
We finished 2000 twenty's strong with 27% growth in adjusted EBITDA in the fourth quarter, while expanding this margin by 120 basis points year over year to eight 8% for the full year 2020, with the backdrop of of difficult operating environment due to COVID-19, we achieved double digit revenue and adjusted <unk>.
EBITDA growth, we delivered net sales of $1 $67 billion of 16, 3% increase over 2019, and adjusted EBITDA of $94 $5 million or five 7% of net sales notwithstanding the estimated impact of COVID-19 on adjusted EBITDA during the year of just over.
$60 million these results speak to our business model and our team's ability to adapt and to stay nimble and the dynamic macro landscape. We delivered approximately 12 gigawatts of wind blades. During 2020, we started the wind blade production in India for Vestas and added Nord acts as a customer in India as well with production starting for them this quarter.
We extended contracts with GE investors and in the fourth quarter, we extended the contract with Nord ex in Turkey.
We continue to make progress in transportation, including hitting key milestones under the Super truck to program with Navistar production of commercial delivery vehicles for war of course, and we're now producing components for multiple passenger EV platforms under technology development and pilot production of arrangements, we continue to refresh our.
Board of directors by adding global operations and finance experience independence and diversity, we published our first ESG report last March and plan to publish our second annual report. This March we remain committed to operating our business safely while continuing to mitigate the impacts of COVID-19, and ensuring that we are.
Per to deal with the resurgence of the virus in any of our global locations, we have and will continue to adapt our operating procedures in order to enable our associates to work safely and continue to meet our customers' demands. We also continue to drive the operational imperatives, we outlined in 2020 and recommitted to in 'twenty and 'twenty one to reduce.
Cost and improve our operations globally, we are making very good progress on these imperatives notwithstanding the challenges created by COVID-19.
Turning to slide six I'll now give you a quick update of our global operations as well as the market update.
During the fourth quarter, we continued to operate all of our facilities at normal levels in China, we delivered more volume than our original 2020 plan demonstrating what an outstanding group of associates. We have there. However at the start of 2021 five lines were removed from production and we expect the remaining lines will run at lower utilization.
During 2021, and therefore, our volumes will be down year over year in China, We will continue to explore opportunities for that capacity, including Chinese Oems, but the shifting of capacity from geography to geography overtime is consistent with our strategy to manage risk and optimize our footprint to enable the highest utilization.
And competitive advantage for TPI and our customers.
In India, we ramped up the first four lines of the facility per vastus, Yeah. We're starting production on two lines for Nord ex as we speak the best just ramp up remarkably well, even though we were in the middle of a pandemic.
And Turkey production continued as normal while we started the transition of three lines during the fourth quarter that transition is continuing into the first quarter of 2021 in Mexico of production also continued at normal levels. We are currently in the midst of of transition of two lines in Matamoros as well as one line in Juarez and we plan on having as many of the seven more.
And transition in Mexico during 2021 in the U S blade and transportation production has continued uninterrupted.
On the service side of the business, we made very nice progress in 2020, and securing new deals with the Oems as well as asset owners and are working hard to build out our global service team to execute our growth strategy in 2021 and beyond to accelerate our growth and to deal with the shortage of qualified technicians, we opened a new training center in Santa <unk>.
The new Mexico to increase our training capabilities and support our rapidly growing need for qualified blade service technicians. We are also continuing to evaluate blade recycling options and look forward to being able to share more on this effort. During 2021 has some significant progress was made during 2020.
The global transportation industry is working to rapidly increase the electrification of vehicles to reduce the impact on the environment. According to Bloomberg any yep electric bus sales are anticipated to grow almost threefold in the U S. From 2021 to 2025, the sales of commercial electric vehicles are expected to grow into the hub.
Grids of thousands by 2030 as the ecommerce continues to rapidly rise and consumers are driving demand higher for passenger electric vehicles. We expect there will be an increased demand for composite components and structures for electric vehicles as composite material systems can be the key material building blocks for purpose built vehicles are.
Composite solutions are ideally suited for transportation of applications because of the benefits, resulting from weight reduction and therefore extended range for evs corrosion resistance strength durability, the ability to scale production with lower upfront production of investment and lower total cost of ownership for end users the level of interest in our.
Capabilities continues to grow we are collaborating with our customers to develop innovative composite solutions for vehicles across passenger automotive bus truck and delivery vehicles to day, we are building composite bodies for buses and delivery of vehicles collaborating on class eight vehicle programs and manufacturing.
The components for multiple passenger EV platforms. Since 2018, we have invested approximately $50 million in our transportation business and we expect to invest upwards of $20 million more in 2021 to continue to build our team technology and infrastructure to capitalize on the accelerating E B and light weighting trend.
With respect.
Back to our supply chain, we did not experience any significant supply issues. During the fourth quarter. We continue to monitor the material markets closely there are still some logistics challenges. For example, there is congestion that Los Angeles area of ports that were working through but nothing that has materially impacted our production. Thus far we will continue to diversify our supply.
Geographically to reduce risk provide for security of the key materials and drive down cost.
Turning to slide seven.
We expect the long term trend for wind energy to continue the strength in based on the current cost of wind energy continued efforts to drive down cost and strengthening of political well around the world to Decarbonize and reverse climate change.
Since our last call of the production tax credit in the U S was extended through the end of 'twenty 'twenty, one and we believe that the tone of the by the administration of setting on climate change bodes very well for renewables over the coming years in the last month for example, president Biden committed to rejoin the Paris climate agreement announced up to $100 million in funds.
<unk> for transformative clean energy technology research and development by the advanced research projects Agency.
And announced several ex executive orders to promote renewable energy of climate Task Force was created.
To set in motion of the government wide action plan for reducing emissions directing all federal agencies to consider climate in their decision making.
<unk> federal procurement to renewable energy targeting federal lands in water for clean energy development and accelerating the permitting of clean energy and transmission projects. As you can see on slide seven wood Mackenzie is onshore and offshore of forecasts continued to strengthen both globally and in the U. S. In addition, we have layered in two scenarios to illustrate.
The potential of the accelerating energy transition.
On the Global chart Bloomberg any S climate scenario shows with global wind installations would collectively need to be to meet of well below two degrees scenario and as you can see of substantial on the U. S chart. These are the wind installations needed to enable the U S to reach 50% renewable electricity by 2030 day.
The scenario created by Wood Mackenzie and the American Clean Power Association demonstrates how the U S wind market can strengthen over time it would be a critical factor in reducing the U S emissions in creating a stronger economy. One of the key findings from the woodmac and ACP work is that administrative actions alone can potentially double renewable energy penetration.
Within the next decade with transmission focused policies to unlock renewables potential while there is still the early days in the by the administration. This scenario shows the strong growth potential of the U S wind market over the coming years in Europe. The support for the European Green deal is strengthening and European leaders are working to finalize the strength and plan to.
Cut emissions beyond the original target in the European Green deal 255 per cent by 2030 compared to <unk> 1990 levels. We believe recent global initiatives to promote wind and renewable energy elsewhere. While also feel of long term renewables growth, including the announcement of net zero targets from China in 2060, Japan, South Korea and.
Canada all of 2015 and of course power to the acts of the creation of synthetic fuels for use in heating transportation and power generation by producing green hydrogen through electrolysis of water using renewable energy.
These are a few examples of the accelerating energy transition we are seeing on a global basis with additional drivers included on slide eight we believe the future for wind energy will continue the strength and given the initiatives and goals to promote the acceleration of the energy transition our long term goals that we have discussed publicly including 18 gigawatts of capacity.
20% market share and 2 billion of wind revenue have not yet been updated to reflect the potential impact of the acceleration of the energy transition as we discussed on the last call. We are working with our customers developers utilities and asset owners to estimate the magnitude and timing of demand both on and offshore to make sure we are aligned geographically.
Rapidly with the capacity of each of our customers' needs over the next decade, well, we're not ready to present updated numbers today, we believe the long term opportunity for us in the wind is significant and we will update our targets when we have better clarity.
Finally, while the health and safety of our associates remains our primary objective we remain focused on our operating imperatives, and our ESG activities to drive profitable growth and long term shareholder value with that let me turn the call over to Brian.
Thanks, Bill Please turn to slide 11 all.
All comparisons made today will be on a year over year basis compared to the same period in 2019.
For the fourth quarter ended December 31, 2020, net sales increased by $43 5 million or 10, 3% to $465 6 million.
Net sales of wind blades increased by 12% to $445 5 million. This was primarily driven by an 8% increase in average selling price per set due to the mix of wind blades produced and a 4% increase in the number of wind blades produced year over year.
Startup and transition costs for the quarter increased by $8 2 million to $13 1 million as we continue to ramp up our India facility and transition lines to bigger blades in Turkey and Mexico.
Our general and administrative expenses for the quarter decreased by $4 3 million to $7 8 million.
G&A as a percentage of net sales decreased 120 basis points to one 7% of net sales. This decrease was primarily related to the decrease in travel and training costs due to COVID-19 during the quarter.
Before share based compensation G&A as a percentage of net sales was one 4% and two 6% in Q4, 2020 and 2019, respectively.
During the quarter, we incurred $3 7 million of restructuring charges associated with reduction of five lines under contract and are deformed China facility net.
Net income for the quarter was $5 2 million as compared to a net loss of <unk> 9 million in the same period in 2019. This increase was primarily due to the reasons previously described.
In addition, we estimate the net income was adversely impacted by approximately $5 million associated with the production volume loss under noncancelable purchase orders due to the reduced production along with other costs, primarily related to the health and safety of our associates and nonproductive labor associated with COVID-19.
Net income per diluted share was <unk> 14 for the quarter compared to a net loss of two cents per share for the same period in 2019.
Our adjusted EBITDA for Q4 was $40 8 million, our adjusted EBITDA margin was eight 8% and our utilization was 92% for lines under contract at quarter end of.
This compares to adjusted EBITDA of $32 million and adjusted EBITDA margin of seven 6% and utilization of 96% in the same period in 2019.
We estimate that adjusted EBITDA was negatively impacted by approximately $5 million associated with production volume loss, along with other costs related to COVID-19 that impacted our production facilities.
Turning to slide 12.
For the year ended December 31, 2020, net sales increased 16, 3% or $233 6 million to nearly $1 7 billion net sales of wind blades increased 18, 9% to $1 6 billion. Despite the impact the COVID-19 had on our manufacturing facilities the <unk>.
Kris and wind blade sales was driven by an 11% increase in wind blades sets produce and of 26% increase in estimated megawatts produced net sales from transportation increased 25, 4% to $36 2 million.
We achieved a 10, 1% increase in adjusted EBITDA to $94 $5 million, despite being significantly impacted by COVID-19.
Globally, our associates did a great job of pulling together and managing through the pandemic, while ensuring their health and safety.
Moving on to slide 13.
We ended the quarter with $129 9 million of cash and cash equivalents and total principal amount of debt outstanding of $218 million.
And of year, where we were significantly impacted by COVID-19, and invested $65 7 million in capital expenditures to grow the business, we held our net debt to under $89 million and we were able to get our net leverage ratio as calculated under our senior revolving loan facility back down to under one eight times by December 31, two.
20.
Turning to slide 14.
2021 full year guidance for 2021, we are guiding to net sales of between $1 7 billion to $1 85 billion.
Adjusted EBITDA of between 110 million to of $135 million, we will discuss this in more detail on the following slide.
Dedicated manufacturing lines during the year are expected to be approximately 50 utilization of between 80% to 85% total wind blade set capacity of 4090 average selling price per blade of between 160000 and of 165000 non blade sales of between 100 million and of one.
Third and $25 million capital expenditures of between $55 million and $65 million.
The startup costs of between 8 million and $11 million with most of it occurring in the first half of the year and.
And we expect restructuring costs of approximately $10 million associated with the optimization of our global footprint.
The 50% of those costs is expected to be noncash.
On slide 15, we provided a walk from our 2020 adjusted EBITDA to the midpoint of our adjusted EBITDA guidance range for 2021.
Our adjusted EBITDA guidance includes approximately $10 million of costs related to the health and safety of our associates as we continue to manage through COVID-19. The overall cost of COVID-19 is expected to be substantially less than in 2020.
Next you can see the results of our Littlest focus on operational execution to drive down the cost of raw materials decreased cycle times decrease waste and continue to drive other costs out of the system.
As Bill previously mentioned, we have taken five lines out of production in China, and we're expecting the other 10 lines to be operating at a lower utilization during the back half of the year. We're also forecasting lower utilization in Q4 for several of our lines in other regions our forecast of decreased utilization in the back half of the year is due.
Due primarily to what we believe is of short term overcapacity issue with a few of our customers as well as certain of our customers shifting production away from China to mitigate geopolitical risks and increasing costs associated with doing business in China.
With the continued momentum in the EV space, we are forecasting that we will invest approximately $15 million to $20 million in the transportation business. During 2021, as we continue to hire and develop our team technology and infrastructure.
Finally, we continue to make progress with the speed of our startups and transitions. Although we are forecasting our total startups cost to be down year over year, we do expect to have more transitions. This year than we did in 2020.
This bar represents both the startup and transition costs in our P&L and the margin impact associated with transitioning to a bigger Blake.
Although we are not providing quarterly guidance, we believe that our Q1, adjusted EBITDA will be less than $10 million due to seasonality and the number of lines that we have in transition and startup.
With that I will turn it back over to Bill to wrap up and then we will take your questions Bill.
Thanks, Brian turning to slide 17, the health and safety of our associates and their families as well as the communities of which they live remain our number one priority. We continue to take the necessary steps on the COVID-19 front to ensure the safety of our associates and safe working conditions in our facilities.
We continue to aggressively work, our wind pipeline and we remain very encouraged by the progress we continue to make in the service space. We are continuing to build on our momentum in the transportation space and we will continue to refine our long term strategy to capitalize on the increased interest investment and activity in the electric vehicle space. We continue to remain focused.
Managing our liquidity to provide financial security and flexibility as we drive through the current environment and execute our strategy to capitalize on the acceleration of the energy transition.
Our overall mission to Decarbonize and electrify remains unchanged, we will continue to optimize our global footprint, while using the leverage our global scale provides for operating and supply chain efficiencies just continue to drive down cost all while maintaining a strong balance sheet. We will continue to evaluate the global demand and update our long term targets accordingly.
To better reflect the long term opportunity, we expect to see and when any of these under this accelerated the energy transition.
Want to thank all of our dedicated TPI associates for their commitment and dedication and for their extraordinary efforts during 2020 to deliver on our commitments to our customers in the middle of the global pandemic.
You again for your time today and with that operator, please open the line for questions.
Thank you we will now begin our question and answer session.
To ask a question you May press Star then one on the telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble roster.
And the first question comes from Philip Shen with Roth Capital Partners. Please go ahead.
Yeah.
Hi, guys. This is Donovan schafer on from Philip.
I have couple of questions for you. The first one is on the I was impressed with the guidance to see that Theres, a pretty big uptick in the S. P. S.
And I'm.
I'm, sorry, I'm trying to think about how the how to think about that and how the model that is the trade off with with volume because you know, there's you're moving to larger blades, but then as you as you guys show on slide 15, there's going to be the negative impact from volume.
That's a great bridge the you've got provided is the accurate to think of.
The increase the increase in transition costs start up costs, but some of the.
The result of that is those higher asps used that pretty significant jump that we're seeing and is that what is that kind of.
Like if you held revenue.
And decreased volume, but perfectly offset it by the ASP uptick is that generally going to be pushing the margins at the should we should we be seeing that kind of phenomenon going forward.
Yeah. Thanks Donovan for the question by the way.
A S pays increase and we've seen that year over year, and that's really all about bigger blades right. So longer blades heavier blades are generally equates to higher asp's. So that's why you're seeing that a S. P growth and we've talked a bit about this before where over time you know that's kind of why we went to a way of little bit from talking.
Correctly about lines and talking more about gigawatts of megawatts of capacity because over time, the number of lines may stay steady or actually reduce but our giga era of megawatts of production may actually go up as long as we continue to maintain the throughput the way, we do and drive cycle time has worried if we're if we're driving the same number of large.
Blades through the same capex investment.
That we were doing on the smaller blades, then youre going to see of revenue uptick for share and overtime. You know as you as those blades mature you should see a margin uptick as well, but it takes a little time to get through the transition of get the serial production, but once you do you should see an uptick in margins as well.
Okay great.
And then my second question is you know.
Vestas has been having some channel there've been some headline blade issues.
And you know there there is some lightning strikes the than they had the issue of the inserts and so forth.
And so I'm just curious.
Because I think in the last in Q3.
And your new.
The filing it showed the best this is something like 50% approximately 50% of revenues for the trailing nine months.
What have you.
Heard or seen anything from them or kind of any indications on the horizon of any type of slowdown coming from investors.
Yeah. So on the blade issue that I think they were pretty clear that that was the sub supplier. It was and it was a component that we clearly use in the blade, but its not of TPI issue as it relates to that.
We're we're still you know the fastest will continue to be our largest customer we will see a little bit of a variation in their utilization at the back half of this year. Initially although our initial indications are showing that 'twenty two looks very strong starting right out of the gate.
At the beginning of the air so.
As we said it looks like at the temporary utilization challenge in the back half of the year, primarily the fourth quarter.
Some of it was a little bit of pull ahead I think of build from 2020.
But overall still.
We're going to be producing a whole bunch of blades for fastest they'll remain our largest customer and we're continuing to work with them on optimizing our footprint.
For for not only our our success, but theirs as well.
Okay, great well congratulations on the part of you guys. Thank you very much I'll pass it on.
Thanks Dawn of I appreciate it.
And the next question will be from Paul Coster with J P. Morgan. Please go ahead.
Yeah. Thanks for taking my question, So China, perhaps you can tell us what happens to the facility and operations in China as the is the utilization rate of pools do you idle it or what's the process the.
Yeah, Hey, Paul from that this is bill. Thanks for the question Yeah. We're working on a number of options. There. Paul you know, we have two blade facilities and a tooling facility.
And the the blade facility, we bought we built in the young Joe is state of the art or our other facility all of those still.
Performing extremely well.
Kind of getting to its functional end of life, just because of the blade sizes have gotten so large.
So we will look at consolidating.
In China, a little bit more than we have we are looking at some other options for our older facility.
But likely its the consolidation of the operations to reduce the footprint a bit and become a little bit more efficient and cost effective out of China.
And on the business the shifted from China or elsewhere that that there was capacity available to absorb that you didn't need to build any new facilities or capacity.
Yeah, I mean, if you think about it it's it's possible that some of the capacity we built in India will will supplement or well replace what was in China again, if that volume was going to the U S. The the tariff doesn't exist between India and the U S. But it does between China the cost of manufacturing in India is.
The significantly less than in China as well so.
We've talked about looking at.
Ah Globalizing and localizing of Derisking supply chain, that's part of what we've done and that's part of what our customers are doing too. So we did add capacity.
In India, clearly and that could be some of the capacity coming out of China.
When I look at the EBIT dog won't come on page 15 of which I agree is very helpful. By the way I look at the demand impacts Orange ball is that all China is it the combination of China in the second half.
M a sort of lower utilization rate, what how do I, how do I think about that 50 plus million $60 million.
M decrement.
Yeah, It's it's not just China, Paul though there are clearly theres some of that in China, but we've got in a couple of other regions some fourth quarter utilization reductions.
Some of those will be used for transitions quite frankly, we're still in the planning phase with some of our customers on what we are what exactly they want going into 'twenty. Two on a couple of a couple of different locations. So it's not strictly China theres, a little bit of of.
Volume degradation and a couple of other regions as well.
Okay final question as you start up the transportation business is it going to be more decentralized and co located all of a closer located to the end customer and smaller scale or is it likely to follow the same pattern as wins very centralized facilities.
No.
I think it hit of it'll depend a little bit Paul, but our plan would be depending on what we're actually doing whether we're doing it.
Full body or if we're doing sub components.
Or or quite frankly in the even in the case of caps, we've talked both models, where we could be centrally located for certain things and then co located for others. So I think it'll be a little bit of of mixed model. It will be different than the blade model there will be much more co location.
As it relates to the different Oems that we're working with I think.
Eliminating the transportation between the central location.
Another location, it's clearly part of the goal and so co location is more likely.
Thank you.
Thanks, Paul.
The next question comes from Chris song with Weber Research. Please go ahead.
Hey, good afternoon, Bill and Brian how are you.
Great. Thanks.
So I'm I'm on for for Greg and just have a couple of questions quantity of just touch on the transportation pipeline like that I think we noted two of your customers recently announced the cooperation on how you're going to be of clothing.
T P. I see eventually of part of that project and it's trying to see how we should think about that pipeline developing.
Yes.
So the you know we are working on a number of of projects as we said in our prepared remarks.
A couple of development projects in the class eight space, whether those are ultimately fuel cell or battery could be either or.
So again.
Where we're at and then we're in the delivery of vehicle space as you know working collaboratively with workhorse on their last mile delivery and then you know a couple of a couple of passenger automotive EV programs that we can't discuss who they're with but those are more sub components. So yeah. Our our plan is to much like we do.
With the blade Oems is to collaborate as deeply with those those parties as they would like us to.
The more collaboration generally the more value you can add in the better the end product so.
That's our that's our mode going in is to collaborate deeply with these guys figure out what the best solution is for the problem, they're trying to solve.
And then that's what our value proposition is so collaboration is important for us in this in this space. We don't want to just be a commodity provider of commodity parts, that's not what our model is.
Alright, great. Thanks, Thanks for the color and I guess, it's a good segue into the work horse of it.
You can see the recent news regarding where of course in the U S. P. S deal.
How much of.
The $500 million of transportation revenue that you guys have for the next three to five years, depending on that deal.
I guess put it another way how much of it of.
The workhorse of the U S. T. S. P. A M baked into that 500 M. D C that timeline sliding out all of the different there.
Yeah. So we set our of 500 target before.
Work, our workhorse was even a customer at the time so.
There was zero from USPS baked into that number that would have been.
An upside opportunity for us.
Clearly in our in our long term plans, we do have last mile delivery.
In our transportation plants, but as far as as far as the USPS and the 500000 they were.
There was nothing for U S P M and the 500.
Alright, great. That's it for me of tender with thanks, guys.
Great. Thanks, Chris.
The next question will come from Eric Stine with Craig Hallum. Please go ahead.
Hi, Brian.
Hey, John Hey, Eric how are you.
Great.
Thanks for taking the question. So can we just come out of China, a little bit of that I think about.
On the one hand, you're you'll be down to 50 lines from I believe 53 at the end of the year.
But then also your commentary seems quite bullish about 2022 should we think about it.
That is due to your kind of in the interim where youre trying to figure out what your OEM partners want to do.
And maybe just what are some of the discussions happening.
Round.
As the Oems try to get away from China or reduced China exposure.
That's looking like in other locations.
Yeah again, just to be clear out of the there it's not like they're running for the hills I mean, there just the there they are rebalancing where their their capacity is to make sure that it's at.
It's efficient and to Derisk for any potential of issues in the future.
So again, they're not running for the hills by any stretch, but they are they are de risking and we think that's the smart thing to do so it's a you know Eric I almost of equated a little bit to the calm before the storm I mean, there's a lot going on in the in the energy World right now everybody is trying to figure out what the EU Green deal.
<unk>, what's it going to mean for western Oems with China's goals for de Carbonization, we of a new administration in the U S. Clearly everything is going to be looked at through the lens of climate change, but what exactly does that mean, so I think 2021 the theres a lot of trying to figure out exactly what's going to happen.
It's not if it's when and so I think that's why there's a little bit of a pause throughout stretches of of the year, but with all of that said, we're still growing our top line, 10%, we're still growing EBITDA by 30%. This is in a year, where we've gotten utilization that's down a little bit lower than we would like it to be so again I I see it as the <unk>.
A year of transition and don't think of transition as the way, we think of the transition, but it is a year of transition in the space right and people trying to figure out what all of this very positive.
Cancel whether its legislation regulation or just you know dim.
Demands of the consumer and de Carbonization mean, and how that gets implemented into the bigger picture of long term.
Right, So I mean.
I guess to put it another way you're used to.
Near term just some uncertainty as to what that looks like but clearly constructive conversations and relationships you've got with those Oems are leading to that pretty bullish outlook for 2022.
That's correct absolutely.
Alright, and maybe just last one just sticking with China I know you mentioned that.
You were looking to some maybe.
Work for some Chinese Oems and I know historically, that's been really non available because of that they've mostly in source production.
Have you seen any changes in the market or just what are your thoughts about potentially replacing some of that business with some of it.
With some players in China.
You know, we've always been in discussion and I'd say it has been a challenge.
Making sure that we get to the right financial terms that makes sense for us and we're not going to compromise financially to do that but.
It is changing we have a we've had opportunities with them outside of China, as well, which doesn't mean you can't build for them inside of China and export.
So again, we're going to continue to work those relationships.
You need to look at the opportunities there is significant demand in China for wind over the next several years. The numbers. This year were staggering them I'm not quite sure of how to take them.
But the but the numbers are staggering and so.
Is there enough capacity in China to satisfy the demand from the Oems and.
And we think there's an opportunity there for us to to play there's also an opportunity for the western Oems to gain share there, especially as large as that market is so we will continue to work with them on opportunities there as well.
Okay. Thanks, a lot.
Yep. Thank you.
And the next question will be from Lora Sanchez with Morgan Stanley. Please go ahead.
Hi, Bill Hi, Brian how are you.
Laura how are you.
Doing well thank you.
Was wondering if you could comment on the impact to margin from moving those lines out of China are costs in India in other locations in all of them.
All of that in that it wouldn't have any impact on margins or how should we how should we think about that.
Yeah, I mean overall, if you look at it there is an impact right now in the short term.
Basically do too.
Going from a mature plants of one of the new plants, but over the long term, we believe the recover those margins as the lines of mature in these other regions. So that's why I mean as bill kind of spoke to as we get the utilization of hopefully in 2022 as we're seeing that's where we see some improvement in the margins with that shift from kind of the smaller blades to the bigger blades.
With additional margin.
Okay. So it's the 12% EBITDA margin goal.
The all on the table.
Yes, I think if you look kind of at this bridge and kind of do the math you can see some different areas of where you can get that and figure out how to achieve those 12% margins. So yeah, we're not adjusting that at this time.
Okay, Okay, and one more from me so going back to commentary on the best of they post desktop from margin pressure in the fourth quarter.
So I was wondering if you could comment on.
Your conversations with customers in regards to price and dynamics are you seeing any pressure of these days and how is your ability to negotiate with them in terms of translation of timing of transitions.
Yeah. So.
Laura we've seen.
Sure on margins for a long time, and the and I think we always well right that just the nature of it.
But with the nature of what the structure of our contract we're able to to be pretty successful in maintaining the margins or even increasing margins over time, just based on the structure of our contracts. So I think if you look in the for our OEM customers they have seen stabilized.
And probably over the last six to eight quarters now so that has helped quite a bit.
But where we're going to we're going to continue to try to drive cost and drive <unk> down.
We will continue to have pressure from our customers and we will continue to pressure our customers two to work with us to drive the costs. So I think it's a healthy there is healthy.
I guess theres healthy stress in that in the kind of that relationship where we're pushing them, they're pushing us and together, we push push costs down and that benefits both of us. So I don't think that that dynamic will change.
Okay, Okay perfect.
The last one you had comment you had said before that from the transportation business you could see double digit margins are you seeing those levels. These days based on cash.
Kind of conversations or are looking at the numbers of some auto companies that seem to be at the high for the auto industry. So how should we think about the competitive dynamics there.
Yeah, I think we're not seeing double digits today, Laura obviously, we're investing in that business, where we're investing from a development standpoint. Some of the the development agreements. We have are are not meant to be significant margin projects.
But we do as we've looked at modeling as we've looked at volumes as we looked at what our costs are.
And what the ask has been from the customers. We've been we've been working with we think we can get there quite frankly so.
Again, we're not it's not like we're in auto OEM or a supplier or a sub supplier a little bit different dynamic but.
Based on what we've modeled to date on some of the some of the projects. We've looked at we do believe that that's attainable, but again, it's still early days on that.
And again more of us more as we get further down the path with production contracts.
Understood. Okay. Thank you.
Thank you Laura.
The next question will be from Graham price with Raymond James. Please go ahead.
Okay.
Hi, Good afternoon. This is graham price on per per BOE motion of.
Yes, just the kind of a broad question on the transportation side I was wondering if you could speaks of the road map for reaching your 500 million dollar of.
Long term revenue target and then also of any recent developments might lead you to believe the that could be conservative at this point.
Yeah, I think the road. The roadmap is you know it's going to take time to get there where we've focused.
We've kind of.
Spent some time over the last four to six months to refine our strategy.
And what kind of looking we're looking at the cap space, which is class eight.
Cap structures as well as cabs for the last mile delivery.
We look at battery and closure.
Think about that as a key component of.
Of any EV as.
As well as then.
Sub components for four <unk>, so all the way from a full body structure two of two of sub component.
We've got.
Development agreements in each of those segments that we're working on right now with customers and so again, it's a it's a 500 million is overtime over over several years.
Any one development program.
Take a significant chunk out of that.
So we're continuing to work those programs.
Eligible Lee educating the market as to what the benefits of composites are and educating them to what the cost of composites can be in volume that its not cost prohibitive.
We're looking at a lot of and developing a lot of innovative technology around that so again the roadmap we haven't put of public roadmap out there, obviously, but we have an internal roadmap that gets us there over time.
And so we're going to continue to focus on executing keep our heads down and when some projects. So.
That's that's that's as much as I can give you on the road map.
Got it. Thank you and then I guess quickly for my follow up of the the.
The 'twenty 'twenty, one guidance for one hundreds of $125 million for the non blade sales next year.
Just wondering the yeah.
And can you give some color on what the breakout is for that that.
Portions.
Yeah, I mean, if you look at kind of of the ratio we've had historically with the mold and some of those and then the other category with transportation. So it's probably about a third of third a third actually when you look at it.
Okay.
Again, we're not forecasting of huge jump in transportation. This next year, it'll take time to get there, but we still see momentum behind it.
Gotcha.
Okay. Thanks.
Yeah. Thanks Graham.
The next question is from Joseph Osha with JMP Securities. Please go ahead.
Hello, everybody.
Joe how are you really don't Joseph very well very well. Thank you I look are looking at that backlog chart that you showed on page nine and then going back and working the one from from last quarter or subtract the revenue it looks like you're basically we didn't add any of any bookings in the quarter of <unk>.
A M my kind of on track with the B M could.
Could you being in the environment now given the comments, you're making about demand dislocation from the stop where the physical with you the of the Biz.
The declines for a while.
No I think so we did we didn't add any new lines, Joe, but we did we did extend.
The Nordics and Turkey. So we would of had a net add there.
But we didn't add anything new to the pipeline so youre right.
It's interesting Joe because as you know when we were early on in this process, we were signing five year deals.
So we have really the visibility was a little bit different as we get as these deals get to their maturity and we are extending them. So you're extending them for one year or two years out of time. So by definition, you have a little bit less visibility from a longer term perspective, but you might have better visibility in that two or three year window. If you will as to.
What we're actually going to do yeah. So I would say, we still have very good visibility.
A year or two out but as you extend contracts versus signed new contracts for a shorter duration. So that's why it kind of you would think you might have less less visibility, but from an operational standpoint, we actually have as good or better visibility when were doing kind of two year extensions.
Okay. So I shouldn't over overweight focus on that $4 6 billion dollar number on how that changes over time.
Yeah, I I would not I mean, that's clearly something that we've had out there for a long time. It's we are we have a lot of focus obviously on making sure we're extending contracts as well as signing new ones and so we'd clearly like to see that grow but that's not something that is driving exactly how we're working the biz.
Today, yes.
Yes, I'll just add to that and if you look at the overall pipeline and what we're seeing I mean, it's still.
What plus over six gigawatts of kind of pipeline, there and so did that hasnt changed kind of longer term.
Yeah that makes sense. Thank you and then just shifting gears a bit you know obviously broad comments about demand, but I mean, that's a very different drivers here in the U S. You've got some of the PTC shifts from Gina you alluded to just the kind of the crazy numbers.
Is this just kind of a bunch of things the wining at the same time or is there of some sort of broader.
Broader global phenomenon here behind the reduced from me I guess, what I'm missing.
People behind the reduced demand.
Behind the courtyard coffee.
Right.
Yeah.
I'm not sure I understand Joe can you say that again.
Well just you know again, you've talked about an environment, where you will kind of take what where utilization of China.
The more cautious comments about the U S. My.
My point was just the.
Those are very different things driving those two different markets. So I'm just trying to understand if there's some more unifying theme here of whether it's true that we happened to have things going wrong in different markets for different reasons of the thank God.
Yeah, I think of I think it's more it's not that demand is down it's that capacity. There's there's more capacity right. There's there's a couple of customers have probably some excess capacity today and so.
It's trying to optimize that capacity going forward. So that the utilization is much higher and so its not necessarily that demand is down it's that demand for our demand for what were building. This next year is down a little bit.
Because of the because of the overcapacity in the industry and keep it in key areas and key regions does that makes sense. So it's not necessarily that the debt gigawatts installed are going to go down. It's just from theres been enough capacity added that the.
The demand on our capacity is going to be a little bit less next year, we're only going to sell of 120 cents less next year than we did this year. So it's not like it's a major drop.
Jesse.
Right. So it's just all of its less utilization than we would like and we wanted to re up that we want to re optimize our footprint. So that we keep that utilization in the in the high <unk> low <unk> as opposed to the low eighty's.
And protect the margin that makes and protect the Martin M exactly right.
One final quick comment I don't know if the question of if you can comment on this or not.
We were pretty excited about some of these are you know couldn't transit bus projects, a year or two ago and hearing less about that can I assume that maybe we shouldn't be looking for some of those projects too to really re.
But at this point of just wanted to give me a little a little color about that.
And on.
The transit bus stuff.
I'll tell you you should you should probably talk directly to the pro Terra of about that.
Our volumes will actually be up for them in 2021 over 2020.
By a fair amount. So we're seeing good volume from them and we're working closely with them on.
Continuing to drive to drive cost so they can they can be even more competitive than they already are so.
Okay.
Thank you very much.
You bet. Thanks, Joe Thanks, Joe.
The next question comes from Greg Lewis with BTG. Please go ahead.
Yes, Thank you and good afternoon everybody.
Hello, Greg.
I kind of had a like like a general question like yeah. Thank you for the guidance you know the Super Super helpful.
Is there any way to kind of.
Balance or think through you know hey. This this is what utilization is and this is what our margin is at this utilization, but you know.
If we can maybe squeeze.
All of you know, whether it's the 100 basis points or 200 basis points of incremental utilization is there any way to think about like would that be additive to margins in any way to kind of think about balancing cost absorption maybe with.
In the world, where utilization maybe is a little bit better.
Yeah, I think I mean, if you look at the last couple of quarters and what we've been able to produce if you think about kind of the eight 8% margins. We had this quarter with 92% utilization and then the prior quarter I mean, we had 93% utilization and fairly robust margins there too.
So I guess that kind of gives you an indication with 10, 4% margin on those and I was with the impact of Covid on the those.
Those quarters, so that kind of gives you an idea of the 80 to 85 per cent and then margin. That's if you don't do any other cost out initiatives to drive cycle times and other things that we're continuing to work through but the costs are if you just look at utilization of loan that's kind of of the margins you can expect to see.
Mhm.
Okay. No that was Super helpful. And then just just realized will run a little long here.
As I think about and you touched on it.
As well as the transportation business goes forward.
You know what the numbers that we've heard you know the Capex for 2021 does any of that start the point too.
Co locations or is that really all just still for things that we're looking at that are of pipe bulk lidar kind of pilot projects at this point.
Yeah at this point that Capex number of the 55 to 65 is primarily the transitions and startups that we've already disclosed and then some of the retooling of the.
And some of the factors I mean, we have some on the transportation side, but not a significant amount that would drive kind of what youre thinking of kind of co locating in that type of activities at this point in tons.
Okay Super helpful. Thank you very much.
Thanks, Craig.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Bill <unk> for any closing remarks.
Thank you again for your time today and for your interest in T. P. I N and please watch for our second annual ESG report, which will be releasing the next month in March.
And we'll talk soon thank you.
And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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